The race is on regarding what health care reform model—more government intervention and mandates, or more individual/business control and choice—will ultimately win.

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Efforts to reform health care have met with some success on Capitol Hill. Health Savings Accounts (HSAs) are creating a paradigm shift in the delivery, consumption and utilization of health care and are lowering costs for small businesses. Other proposals aimed at reducing costs are moving through Congress, and Senate Republicans are attempting to push key initiatives through the chamber as part of their “Health Week” this week.

Given the dynamics of the issue—that health insurance is too expensive for small firms, and more than 60 percent of the uninsured either work for a small business or are dependent upon someone who does—you would think that advancing a bill allowing small firms to take advantage of an existing federal framework to purchase more affordable and flexible health coverage would rocket through Congress.

Indeed, three-dozen Democrats joined Republicans in passing Small Business Health Plans (SBHPs) in the House last year. Yet, the current debate over SBHPs in the Senate represents the divergent paths that health care reform is currently taking.

Should government allow individuals and businesses to choose what types of coverage they want and can afford? Or, should it mandate comprehensive (translation: pricey) coverage, require purchase, and fine businesses for not providing insurance? At the federal level, reform has embodied the former and the states are fully embracing the latter.

Of course, for small business, cost is the central issue. The cumulative effect of multi-year increases in health insurance premiums has made it more difficult for small firms to retain coverage while putting the dream of being able to provide this benefit out of reach for many.

Thus the idea behind SBHPs. The approach would allow small firms to leverage their numbers as a group to negotiate for a greater variety of affordable plans. SBHPs would operate under one set of uniform federal guidelines, like corporate or union plans currently do, and even under the Senate bill (S. 1955) states would retain significant regulatory authority. Small businesses would be required to present a comprehensive plan choice similar to those offered in one of the five most populous states in the nation, in addition to their own plan. That’s the choice part.

Disease groups (diabetes, cancer, etc.) are charging that helping small business through SBHPs means “gutting quality health care”—a speculative and unfair charge. Well, some senators have become rather conflicted. Who wants ads aired during an election year claiming you’re anti-mammogram?

Required Mandates Increase Cost—Who Wins?

The issue comes down to mandates. These are requirements imposed at the state level that make an insurance company or health plan offer specific health care providers, benefits or patient populations. According to Dr. Merrill Matthews, director of the Coalition for Affordable Health Insurance (CAHI), mandates “are one of the primary reasons for the escalating costs" in health insurance premiums. They increase the cost of basic health coverage from less than 20 percent to more than 50 percent, depending on the state and the specific legislative language, according to the CAHI study “Health Insurance Mandates in the States.”

Therein lies the crux of the issue—do lawmakers allow over 40 million people to remain uninsured because of the lobbying muscle of the mandate lobby?

At the federal level, the legislative trend has been directed towards advancing reforms that address cost and choice issues to bring more people into the ranks of the insured. However, many states are moving in the opposite direction, which may have the effect of undermining consumer-directed health plans and federal proposals that aim to make coverage more affordable and flexible for small employers and individuals.

At a House congressional hearing last week, Employment Policy Institute Research Fellow Craig Garthwaite said most of the state efforts miss the mark with respect to addressing high costs.

“Rather than delve into the underlying pressures that make health insurance increasingly unaffordable, state lawmakers have largely directed their energies at determining who should pay for it. Invariably, their efforts have focused on forcing employers to provide health benefits to their employees," said Garthwaite.

Indeed, legislatures and governors are taking a new look at employer mandates and other schemes such as “play or pay.” About thirty states are reviewing “Wal-Mart-type” employer-mandate measures, which passed in Maryland and force employers with more than 10,000 workers to devote at least 8 percent of payroll to health care benefits. Massachusetts’ newly minted individual mandate, signed by Governor Mitt Romney, has triggered curiosity.

Under the Massachusetts plan, Bay State firms with 11 employees or more will pay a $295 per-worker tax if they do not provide insurance. When the plan fully kicks in, individuals could be penalized up to an estimated $1,200 if they don’t buy insurance on their own.

It could be that such penalties on small firms and individuals in Massachusetts are only the floor, as experts predict costs will soar. Other costs and entanglements exist, such as surcharges on employers when employees receive “free services” exceeding a certain number of times in a year; broad anti-discrimination provisions that could trigger treble damages and attorneys’ fees and costs; and, unknown administrative costs in fulfilling the requirement that every employee and employer doing business in the state sign, under oath, the “Health Insurance Responsibility Disclosure” form. There’s more, but at least criminal penalties are not mentioned—not yet.

At one point, health reform proponents favoring less government and market-oriented approaches were extremely optimistic about the state of health care reform. Indeed, the adoption rate of consumer-directed health plans is rapidly increasing and consumer-centered interests are quickly becoming entrenched.

And the race continues.

“I think it’s the debate we are going to have up until the 2008 election,” said Dr. Matthews.

Unfortunately, from a cost and certainty perspective, many small businesses simply don't want to, or can’t, wait that long.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council, a research and advocacy group based in Washington, D.C. that works to protect small business and promote entrepreneurship. She is also founder of Women Entrepreneurs, Inc., an association helping women business owners succeed through education, networking and advocacy. Kerrigan can be reached at kkerrigan@sbecouncil.org.


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